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Merkel, Sarkozy 'confident' of new Greek bailout deal

Greek Chancellor Angela Merkel expressed new optimism on a Greek bailout deal Wednesday ahead of talks with French President Nicolas Sarkozy aimed at hammering out a draft agreement on the eve of a eurozone summit in Brussels.

AFP - German Chancellor Angela Merkel and French President Nicolas Sarkozy are confident they can agree on a common position for the eurozone summit on Thursday, her spokesman said.

"Germany and France ... must agree. If this does not happen then we can't make progress in Europe. There is confidence on both sides that such a common line can be worked out this evening (Wednesday)," Steffen Seibert said.

"The chancellor will go to Brussels tomorrow (Thursday). We are very confident that we can reach a solution that is good and takes us further," he told a regular briefing ahead of Merkel and Sarkozy's talks from 1530 GMT.

"This is uncharted territory for all those involved. But this is a challenge that we must all overcome," Seibert said, saying the eurozone was facing its "biggest-ever test."

He added that although France and Germany were the two biggest economies in the 17-nation eurozone, Merkel and Sarkozy were also in close contact with other leaders as well as with EU President Herman Van Rompuy.

Finance ministry spokesman Martin Kotthaus told the same briefing that he still expected the new bailout to include private sector involvement, without saying what form this would take.

"We will of course reach a solution that we, and hopefully you too, will be happy with," Kotthaus said.

Merkel, wary of unhappy voters and a watchful constitutional court and parliament, has pressed for private investors, not just taxpayers, to pay for some of what will be the eurozone's fourth rescue package.

But Germany, the eurozone's paymaster, backed by Finland and the Netherlands, have been at odds with the European Central Bank and other eurozone governments over how this would work.

Credit rating agencies have warned that any changing to the terms and conditions of outstanding Greek sovereign debt would lead them to classify Athens as being in default, something which could have dramatic results.

Jean-Claude Trichet, European Central Bank president, repeated a warning on Monday that any default would mean that Greek banks could no longer offer the country's bonds as collateral for vital cash lifelines from the ECB.